The Financial Conduct Authority has inspected a number of locations in the Leeds area that are thought to be hosting crypto cash machines that are being operated illegally.
The joint operation with West Yorkshire Police is reportedly a first in the country.
By inserting cash into or withdrawing it from specialized terminals that may resemble regular cash machines, users can buy or sell digital assets like Bitcoin.
However, it claims that because no such machines have been registered with the FCA, using them in the UK is prohibited.
One similar service is FCA registered, but its customers purchase cryptocurrency assets through an app or bank transfer and then withdraw the sales proceeds using standard ATMs.
According to the watchdog, it is collaborating with a number of law enforcement agencies, including local police departments, to stop and disable illegal crypto cash machines that are located in supermarkets, bars, restaurants, newsstands, and post offices.
A 2020 government report discovered that "money mules" were increasingly using the devices—which were more prone to hacking than online exchanges—to launder illegally obtained money.
"After conducting intelligence-gathering work across West Yorkshire, we soon established the locations of several live crypto ATMs," said Det Sgt. Lindsey Brants of the West Yorkshire Police Force Cyber Team. ".
She said that after sending letters to the machine operators warning them not to use the machines and that any violations of the laws governing money laundering would result in an investigation, the officers shared their findings with the Financial Conduct Authority.
Similar advice had been given by the FCA in March 2022.
Det Sgt. Brants continued, "We are happy to be able to work in partnership with the FCA in what we believe is a national first here in West Yorkshire.
The maximum penalty for unregistered cryptocurrency activity that violates money-laundering laws is two years in prison.
Mark Steward of the FCA stated that the agency would keep track of and shut down unregistered cryptocurrency businesses.
He cautioned that cryptocurrency products were "unregulated and high risk" and that investors should be ready to lose everything.